How healthy are your personal finances?

As we approach the end of the year, it’s a good time to review and take stock of your personal finances. When it comes to South Africans and their personal finances, research suggests 2 startling facts:

South Africans on average spend 75% of their take home pay on repaying debt; and
Only 6% of South Africans are able to retire financially free.

No matter what your current personal financial situation is, it is never too late to make some changes that will improve your current and future financial position. We would like to suggest the following 6 golden rules when it comes to taking charge of your finances:

Rule # 1 – Spend less than what you earn

If everybody followed rule number 1, nobody would have any financial problems. Breaking rule number 1 is the root of many financial problems. If you don’t have the money, you can’t afford it. Avoid the buy now, pay later syndrome.

Rule # 2 – Save 1^st and spend what’s left

Not the other way around! The 1^st thing you should do when you get paid is put away your committed savings amount. Whatever is left thereafter is what you have left for spending. If you spend 1^st, you will most probably spend everything and have nothing or very little left to save.

Rule # 3 – Other than your House & Car, pay cash for everything

Very few people are able to buy a house and / or car cash so we regard these as acceptable items to finance via debt. For everything else, save the cash and then buy the item. Following this rule will ensure you never get over-indebted.

Rule # 4 – Avoid debt at all costs

There is good debt and bad debt. Good debt would be a bond on your house. Bad debt would be credit card debt, short term loans, personal overdraft etc. These types of debt are expensive and if you don’t manage them well, can land you in a debt trap.

Rule # 5 – Put your money where it grows, not where it shows

Avoid the temptation of buying expensive toys to make yourself look rich. Rather invest your money into appreciating assets where you will earn a return on your investment. This may mean putting your ego aside and not driving the fanciest car around etc.

Rule # 6 – Make full use of all the tax allowances available to you

Have a professional help you with your taxes to ensure you are making full use of tax free investments and claiming all the available deductions against your taxable income.